Yanick Houle

The Appellant, an insolvent mining company with significant tax losses, underwent a series of transactions to spin out its mining assets and acquire a real estate business from two corporate groups.

To avoid an acquisition of control that would restrict the use of its losses under subsection 111(4) of the Income Tax Act, the corporate groups structured their share consideration to include non-voting shares, ensuring they held less than 50% of the voting shares despite owning over 90% of the equity.

The Minister reassessed the Appellant to deny the deduction of net capital losses under the general anti-avoidance rule (GAAR).

The Tax Court of Canada dismissed the appeal, finding that the corporate groups acted in concert as a group of persons, the use of non-voting shares was an avoidance transaction that resulted in a tax benefit, and the transactions abused the object, spirit, and purpose of subsection 111(4) by fundamentally transforming the corporation to allow new shareholders to benefit from its historical losses.

The respondent brought a voir dire motion to exclude two expert reports tendered by the appellant in a tax appeal concerning foreign accrual property income (FAPI) and foreign accrual tax (FAT) deductions.

The Tax Court of Canada ruled that the report of Dr. Jack Mintz was inadmissible in its entirety as it offered legal opinions on domestic statutory interpretation.

The report of Brad Rolph was ruled partially admissible; the section detailing alternative transfer pricing structures was admitted for the limited purpose of providing a foundation for the appellant's argument, while the section opining on the Minister's policy and statutory interpretation was excluded.

The appellant corporation appealed a reassessment that added a $31,500,000 capital gain to its income for the 2005 taxation year under the General Anti-Avoidance Rule (GAAR).

The appellant had engaged in a series of transactions, including the circular payment of capital dividends and cross-redemption of shares, to avoid the application of subsection 55(2) of the Income Tax Act and reduce the capital gain realized on the sale of its indirect interest in a pharmaceutical company.

The Tax Court of Canada found that while the transactions complied with the literal wording of the capital dividend account provisions, they frustrated the object, spirit, and purpose of subsection 55(2), which is intended to prevent the conversion of taxable capital gains into tax-free intercorporate dividends.

The appeal was dismissed.